75 Innovation Lessons From Nassim Talebs the Black Swan

While this reasoning loop relaxes our brain and allows us to avoid feedback, it also ensures that we are not learning how the world really works. One of the biggest mistakes that people make with black swans comes with a big impact. Some recent survey evidence indicates that this might be true.

As indicated in #3, the turkey suffers from the problem of induction. It supposes that day 1,000 will be another day of roaming free on the paddock, eating copious amounts of leaves, berries and grass. But the past, as the turkey soon learns, is not always the best predictor of the future — especially in Extremistan. The Black Swan The Impact of the Highly Improbable Metaphors and stories are more potent than abstract ideas alone. The second half was using the theory to breakdown different aspects of everyday life and analyzing seemingly unimportant decisions. The AIChE online library includes articles, journals, books, blog posts, and more on a variety of topics.

A Primer On Extremistan

Yet we must anticipate the likelihood of encountering a “black swan”, an event that we would judge to be highly improbable, but nevertheless could have enormous consequences. The next time you experience a blackout, take Fxpro Review some solace by looking at the sky. Before people bought their own generators, one side of the sky was clear at night, owing to the absence of light pollution. That was the side of town farthest from the combat zone.

Once upon a time there was a clever young financial professional called Nassim Nicholas Taleb. Of Lebanese – or, as he preferred, Levantine – descent but working in New York, he was an option trader and quantative analyst. Our brains are wired for narrative, not statistical uncertainty. And so we tell ourselves simple stories to explain complex thing we don’t–and, most importantly, can’t–know. The truth is that we have no idea why stock markets go up or down on any given day, and whatever reason we give is sure to be grossly simplified, if not flat out wrong. For years, Taleb has studied how we fool ourselves into thinking we know more than we actually do.

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We humans are the victims of an asymmetry in the perception of random events. We attribute our successes to our skills, and our failures to external events outside our control, namely to randomness. I came out of the meeting realizing that only military people deal with randomness with genuine, introspective intellectual honesty—unlike academics and corporate executives using other people’s money.

Mitigate the risk of negative black swans (using insurance and/or capping the downside are ways of doing this). This should not be news to too many entrepreneurs, but ultimately, whether it be selling to customers, or trying to raise capital, tell stories that make what you do and why it’s important relatable, memorable and shareable. Taleb himself used the metaphor of a black swan and used stories throughout his book to illustrate what would otherwise be a somewhat abstract and more difficult to communicate idea. Free markets are successful because they allow people to be lucky → so you should tinker lots to collect lots of black swan opportunities.

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Such models only work in certain conditions, so the human brain is often more effective. Having more information does not always help, and getting it can be expensive and slow. A laboratory situation is very different, but in investing, complexity can be handled and controlled. It is our intent and purpose to foster and encourage in-depth discussion about all things related to books, authors, genres, or publishing in a safe, supportive environment.

But we also need to rely on intuition, common sense, and simplicity. Conversely, it is highly unsatisfactory and very risky to simply ignore the potential for black swan events to occur. To take the view that we cannot predict them so we will plan and model for our financial future without them is looking for trouble. And yet, this is often precisely what is done by firms, individuals, and even governments.

Definition Of A Black Swan

There were some obvious benefits in showing one’s ability to act on one’s opinions, and not compromising an inch to avoid “offending” or bothering others. I was in a state of rage and didn’t care what my parents thought of me. This made them quite scared of me, so I could not afford to back down, or even blink. Had I concealed my participation in the riot and been discovered, instead of being openly defiant, I am certain that I would have been treated as a black sheep.

In business, this would be like a venture capital firm finding a bunch of small start up companies. Instead of investing all their money with one of them and hoping it works out, they invest a little of their money in all of them. The one that The Black Swan The Impact of the Highly Improbable finds the blockbuster widget makes enough money to more than cover all the other bets. In overall summary, this book is a generally accessible challenge to the widespread use of Gaussian statistics as tools of prediction in socioeconomics .

Finite And Infinite Games: Two Ways To Play The Game Of Life

A thought-provoking piece that’ll make you appreciate randomness as well as luck’s role in all aspects of life . Extremistan is the unexpectable, Black Swan world of financial markets, book sales, and death by terrorism. For these very reasons he can be both fun and exasperating to read. Still, I value the perspective and questions he has raised on the topics of probability, risk analysis and self-deception. Whether the image of Taleb mirrored in the book is one of an epistemological rebel or a fundamentalist or a messiah, I am still wondering.

• Weitzman shows how people can act like they believe in black swans even if no black swans are actually present.
• It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge.
• First, make a distinction between positive contingencies and negative ones.
• Of course, survey research like this has to come with a caveat — people are probably not able to precisely report their own guesses about probabilities.
• If your workplace included heights, wearing fall protection would minimize the result of a slip or fall.
• For example, if I represent a commercial real estate company, elements from the future might be autonomous vehicles and sustainable urban agriculture.
• In summary, human beings are not well-equipped to learn from history.
• He spent over twenty years as an options trader and risk analyst, and today has interests in venture capital.

We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world. The way to avoid the ills of the narrative fallacy is to favor experimentation over storytelling, experience over history, and clinical knowledge over theories. A black swan is an event that is rare, very important, and is both difficult to have predicted but is considered obvious in hindsight.

Reading Recommendations

Tail risk is portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution. Taleb warns against letting someone with an incentive bonus manage a nuclear power station or your money. Ensure that financial complexity is balanced with simplicity. Certainly, these vary substantially in quality, but if you find a good one, you can really leave the diversification to one supplier. Gigerenzer considers the Nobel Prize-winning work of Harry Markowitz on diversification, and in particular Markowitz’s development of modern portfolio theory .

Taleb later ties this into his subsequent concept of the antifragile. Antifragile is better but you will still be put off by his writing style. You don’t need to read much more than the first few chapters of “The Black Swan” to understand the point. Taleb is obviously very impressed with his own intellect but it wears a bit thin. Whenever someone tells you not to go to the cause, it is worth heading straight there out of bloody-mindedness. Taleb tells us about an Italian professor who maintains that Taleb could not have come to such conclusions about risk if his background was a Protestant society in which work and reward were linked as cause and effect.

Lessons For Entrepreneurs From The Black Swan

BY Lorie Konish